Brand Editorial

Changing environments and insurance: Sharon Fox-Slater

Hotter, wetter, drier… as Australia’s environmental conditions change, the need to better protect investment properties crystallises. EBM RentCover Managing Director Sharon Fox-Slater says having the right insurance can protect landlords from the financial devastation Mother Nature can unleash.

Natural disasters killed 10,400 people globally in 2018 and left millions more homeless. In the same year, natural catastrophe-related economic losses reached approximately AU$235 billion. Of the 850 registered events, 95 per cent were weather-related:

  • 42 per cent storms;
  • 46 per cent floods, flash floods and landslides; and
  • 7 per cent attributed to heat, cold and wildfires.

Around 40 events in Australia and Oceania caused overall losses of approximately AU$2.2 billion (of which just $794 million of those losses were insured), according to Munich RE’s data. 

As environmental conditions around the globe, and here at home, see a rise in temperatures, flooding and fires, the risks to properties getting caught up in a natural disaster rise too.

According to CSIRO’s 2018 State of the Climate report, Australia’s warming climate will bring more extreme weather events: floods caused by more intense rainfall and rising sea levels, wind and rain damage from more intense tropical cyclones; and increased bushfires as a result of hotter, drier weather in southern Australia.

By 2030, it is estimated Australia will face:

  • about 1°C of warming, resulting in more heat waves;
  • up to 20 per cent more months of drought;
  • up to 25 per cent increase in days of very high or extreme fire danger;
  • increases in storm surges and severe weather events; and
  • a sea level rise of about 15cm.

Source: http://www.yourhome.gov.au/housing/adapting-climate-change

While building design is evolving to help mitigate the risk of damage from changing weather conditions, insurance also has a role to play. The right insurance means owners can financially protect their investment against a range of extreme weather events.

Heads up: A number of environmental conditions are uninsurable, as the damage or loss is not the result of a single ‘defined event’ (check out our Jargon Buster to find the definition of a defined event). An example of something not covered is coastal erosion because this is gradual.

A good landlord insurance policy should provide cover against key environmental events – bushfire, cyclones, severe wind, floods, storms and hailstorms.

TIP: To find out what risks exist at a specific property, check the Insurance Council of Australia’s MyHazards app, which provides information on current known risks of exposure to floods, cyclones, bushfires and other natural hazards for more than 11 million properties in Australia.    

If you find the property is at risk of a particular weather event, you may also find this has an impact on insurance cover. There may be restrictions or exclusions on policies, or higher-than-usual premiums, as most insurance providers decide if they will offer cover at a particular property, and at what cost, based on risk to the individual property.

Typically, if the risk to a property is high, it will be reflected in the premium. BUT, this is not the case at EBM RentCover. Because EBM RentCover spreads the risk and therefore the premiums are shared across the portfolio (sometimes known as ‘premium pooling’), customers have the same level of cover at an affordable price.

Not all insurers cover all environmental risks. Some risks may be outright excluded from policies, such as loss or damage caused by an act of the sea.

Other features may be optional extras and come with a higher premium. For example, flood cover is not standard in all landlord insurance policies. Some insurers will not cover the risk at all, especially for owners of properties in flood-prone areas and others allow owners to ‘opt out’ or ‘opt in’. At EBM RentCover, all landlord insurance policies automatically include flood cover, with a standard premium regardless of property location.  

Checking under what conditions certain events are and aren’t covered is also super important. For example some insurers cover flood damage only as a result of rain. And, while bushfire is generally covered, loss or damage to any item caused by scorching, melting or charring without flames is usually not.  

As Australia’s environmental conditions change, we’ll need to flood and storm-proof our properties and generally find ways to create a ‘buffer’ against loss and damage caused by extreme weather events.

One very important buffer is having the right insurance policy in place – one that provides financial protection against Mother Nature.

Word to the wise: Most insurers require a policy to have been active for a certain amount of days before it will respond to a claim relating to weather events. For example, at EBM RentCover, a policy has to be active for longer than 72 hours before it responds to a bushfire claim. 

Every investor wants a secure investment. But not everything always goes to plan and some events simply can’t be controlled (like the wrath of Mother Nature). What can be controlled is whether your landlord clients are protected by the right landlord insurance.

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